Fall in issuance value
The period between 2019 until 2021 witnessed the corporate bonds market exploding with a sudden increase in the number of issuances. In these three years, the issuance value reached nearly VND 1,600,000 bln, accounting for 64% of the total issuance in the period 2005 until 2022, causing the scale to increase from 7.3% in 2018 to nearly 18.9 % in 2021. In terms of industry structure, banking and real estate accounted for the highest percentage in corporate bond issuances, by 65% in value and 60% in the number of issuances in the period 2005 to 2022, because these are two large scale industries with huge capital needs.
Real estate businesses actively issued corporate bonds in the period 2019 to 2021 to overcome difficulties in accessing loans from banks, when the State Bank of Vietnam clearly stated a policy of closely monitoring real estate credit. This included regulations on the risk coefficient of loans for real estate businesses which increased from 150% to 200%, and at the same time reduced the proportion of short-term funds used for medium and long-term loans. Therefore, the growth rate of real estate credit gradually decreased from over 26% in 2018 to about 12% in 2021. In addition, many real estate businesses did not meet the conditions for loans from banks, having switched to issuing corporate bonds with high-interest rates, using no collateral, and subject to supervision of money disbursement activities.
However, after a period of hot growth, the value of corporate bonds issued in the second quarter suddenly dropped sharply. The reason is that after the Tan Hoang Minh case, the Ministry of Finance strengthened inspection and supervision of issuances and service provisions in the Ho Chi Minh City market. According to statistics, in the nine months of 2022, there were 411 corporate bond issuances, along with 389 individual issuances, with total issuance value of VND 244,191 bln, down 67.7% over the same period last year.
Finding capital
When the enterprises promoted bond issuances in the period 2019 to 2021 it increased the pressure on maturity of bonds in the 2022 to 2026 period. According to estimates of KB Securities Vietnam (KBSV), the total maturity value of corporate bonds in 2023 and 2024 will be VND 374,300 bln and VND 381,200 bln, respectively. In this, the real estate group will account for the second largest proportion, which is to say, VND 120,400 bln or 32.1% and VND 121,100 bln or 32%. Particularly in the fourth quarter of 2022, as per statistics of Vietcombank Securities Company (VCBS), the volume of mature corporate bonds is about VND 85,000 bln, of which the real estate group accounts for 27%, equivalent to VND 23,000 bln. Some listed real estate companies with bonds maturing in the fourth quarter are LSG with VND 1,850 bln, HDG with VND 500 bln, KHG with VND 300 bln, DLG with VND 268 bln, NVL with VND 200 bln, SCR with VND 80 bln, and FCN with VND 80 bln.
Real estate enterprises are facing the challenge of raising capital by issuing new bonds to reverse debt. Recently, the 5th draft amendment of Decree 153/2020/ND-CP regulating the offering of corporate bonds was published, with changes in the direction of further tightening for issuers and investors. Accordingly, enterprises are prohibited from issuing bonds to contribute as capital, purchasing shares in other enterprises, or lending capital to other enterprises. It is required that the total outstanding balance of bonds does not exceed three times the equity, and business operations in the preceding year are profitable and have no accumulated losses.
It also stipulates that professional investors who are individuals can only buy individual bonds issued by public companies and must have collaterals or guarantee payment methods. If this draft is approved, it will make businesses that have financial difficulties see limited access of bank credit sources, and they will not be able to issue individual bonds.
In terms of actual demand, the end of this year and the next two years will be difficult periods in terms of cash flow for real estate companies with mature bonds. Especially for small-l and medium-sized enterprises with low assets, there will be many difficulties in finding capital to rotate as many mobilization channels are closed. For instance, the stock market has plunged, making the plan to raise capital on the stock market no longer easy. Besides, it is difficult for businesses to access bank loans, and the absorption of the real estate market in 2023 to 2024 will decrease due to the negative impact of the global economic recession.
Investors cautious
In the trading session on 18 October, real estate stocks suddenly gained strongly because of bottom-fishing demand when this group had a deep correction. According to statistics, with the exception of industrial real estate stocks, which remained stable, civil real estate stocks fell sharply at an average of nearly 30%, higher than the decline in the general market. However, the joy of shareholders holding real estate stocks did not last long when many stocks fell in the next session. This phenomenon shows that investors still have a cautious view of the group of stocks that were once considered strong in the stock market.
According to analysts, the loss of attraction for real estate stocks, in addition to the fear of bonds maturity pressure, also comes from criminal cases involved in price manipulation on the stock market, because many real estate stocks are classified as speculative stocks. In addition, macro information is not supportive of the real estate industry, such as inflation, credit tightening policies, capital flow into real estate businesses, and the stock market. Rising housing costs and tight supply have led to low liquidity in the real estate market and a decline in the profits of all real estate businesses. These are factors that have negatively impacted real estate stocks in general.
In the long term, real estate is still an industry with good growth opportunities and great potential. Even companies facing pressure with bonds maturing, remain unconcerned, even large enterprises such as NVL and SCR. These enterprises all recorded huge new opening sales and the ability to raise capital from abroad through the issuance of convertible bonds. Therefore, the ability to balance cash flow and loan repayments is still feasible.
